75 percent of your payment is invested in an endowment fund to pay for all future costs. We set the cost per MB such that the income from the endowment fund will be sufficient to cover all expected future costs. In particular, we calculated the present value of all future costs conservatively, assuming that some of these, such as the cost of labor, will grow steadily, while others, such as the cost of storage, will remain constant.
An endowment fund is required to preserve the principal (the money invested) in perpetuity, and only pays out investment income, such as interest, dividends and capital gains. As a 501(c)(3) non-profit organization, the Foundation is not liable for taxes on income from its exemption-related activities, and can thus use all of its income to preserve your data for posterity.
The annual investment income is expected to be sufficient to cover ongoing costs forever and to pay for periodic migration of data to new formats. In case of unforeseen events such as spikes in the cost of labor or electricity, the Foundation has established a set of priorities and procedures, such as increasing the price per MB for new users or migrating data to formats that allow better compression, to guarantee the preservation of your data.
Consistent with the requirements for an endowment fund, our investment policy is conservative: more than 50% of the fund is invested in investment-grade fixed income securities, and the remainder is invested in a highly diversified portfolio of other investment products favored by university endowment funds, including common and preferred stock. Diversification across asset classes, industries and geographies reduces the risk of the fund.
Most money is invested in low-cost index-tracking funds to achieve a high level of diversification with minimal transaction costs. In particular, we only invest in funds with an annual expense ratio below 0.2 percent of assets under management.
Our operational expenses include the costs of website hosting and backup data storage, database and website maintenance, including periodic data migration to new formats to prevent file format obsolescence, and customer support. Nearly 95 percent of your contribution pays for operational expenses, now and in the future, while 4 to 5 percent cover the cost of payment processing, i.e., credit card transactions.
Our administrative expenses include all other expenses, such as administrative salaries, rent, accounting and legal fees. These expenses are very low, accounting for less than 0.5% of fund value annually.